Yesterday's news of the rumor that Microsoft is about to purchase Yammer surfaced and Bloomberg was able to get confirmations there were talks happening. This one seemed a little odd last evening as the rumor broke, but then the ambient signals that myself and others had been seeing with Yammer made sense in that light. Companies start acting differently, often quite off the norm, and don’t really explain why. Yammer has had that in spades lately. The other reasons besides being bought are: IPO; workforce needs (turn over, need to hire, massive wave of new hires, etc.); or large new customer(s) taking a lot of focus.

Does the Purchase Makes Sense

Talking with others who live and breath in this space, Microsoft buying Yammer wasn’t the first company many of us had on our potentials list. Microsoft has had a difficult time with Sharepoint social components (a similar problem to Oracle’s social offerings) in that the bolt together social elements take a lot of understanding and depth to get right and there is much more than bolting things together. Any company purchasing Sharepoint in the last 18 months to 2 years that has done their due diligence knows they need to find something better for the social software components than what Sharepoint offers. Too many dead ends, too much of it isn’t used.

For inside the organization there are many great options that are much easier to put into place than the social Sharepoint components, and they all plug into Sharepoint nicely. Sorting out which of the options takes a lot of understanding and depth, much of it missing from the consulting and analyst space as it is the nuances that make huge differences.

Vendors the past 4 to 5 years in the social business / Enterprise 2.0 space have had a relatively easy time selling against Sharepoint. In the last couple years social business service/platform vendors saw a shift. Sharepoint was not whom they were competing against, as it wasn’t being taken seriously by buyers who did their homework. The platform they were hands down pitching their services against and most often winning agianst was Yammer.

Yammer with its freemium model has made huge inroads, mostly through the back door. Most companies were slow to provide a good offerings and are still not providing authorized services for internal uses to their employees. This slow approach is easy to fix, just set up Yammer and you are off and running, which is great for employees, but a huge liability if it isn’t owned by the organization.

Yammer has serious traction with its claimed 200,000 companies using it (well, people in those companies using it). Yammer claims 3 million paid customers, which while a great sum for revenues, when measured against 200,000 and estimating 100 people in each company (a conservative average) you get 20 million people and only 3 million have licenses. Not an impressive conversion rate, and the multiplier is conservative. This is tough to take to Wall Street to go IPO with.

How on target is the conversion rate? When the competing vendors, nearly hands down, mention Yammer as their top competitor and they can win most of the head-to-head customers in that match-up, there is a conversion problem. Yammer shows the need, sells the value, but there are gaps in their offerings that cause them to not convert. In talking to customers who have been through that process the reasons are diverse, which make it difficult to close those gaps. The common two reasons mentioned are: 1) The value of what is paid for and what is given away for free; and 2) Some of the components are a bit buggy or don’t perfectly fit the needs.

Yammer use educates the customers for free and helped them identify needs and gaps they need to focus on when getting down to purchasing. This is a downside of large freemium models. The customers gain understanding and think, “Yes, this is good, but we want better in these areas.”

So, Microsoft and Yammer?

Microsoft has a large problematic gap to fill with Sharepoint in the social slice of their offering (Sharepoint does many things well, social is not something that fits that description other than Team Sites, but groupware for teams has been honed and iterated for 20 years, they should get that right). Yammer does the social software slice rather well, but has issues with conversion to paid customers. Microsoft is a selling machine, particularly with Sharepoint.

This sounds like a match that makes more sense. I still don’t think Yammer is the optimal fit for Sharepoint. Services like Newsgator for inside the firewall is usually a first stop for organizations needing social that works and can be deployed far more easily. I hear customers often say Microsoft suggested they use Newsgator or give it a shot.

What Impact to Other Vendors?

Many vendors should be just fine with this Yammer and Microsoft marriage if it happens. The ones with trouble would be the one’s who focus on the Sharepoint ecosystem and live off it, like Newsgator and Telligent (a more outside the org social platform strength than inside).

Other vendors that don’t rely on Sharepoint but integrate still will likely keep winning business and have very happy customers. Social is very broad and while most analysts and consultants look at features and checking them off, that is only a small slice of what to look for to get success with a service or tool. The interaction design, how it works with mobile, how easily does it integrate with other services, and many other considerations are where the key differentiation comes from.

I know many organizations with very successful social software offerings for their employees with relatively high use rates of the services, but they are using 2 or 3 different platforms that various segments of their organization use. Different cultures and personality types in the organization drift to certain offerings and not others. Organizations who are moving to the “one solution” model really struggle. Yes, there are downsides like getting everybody talking, but there are ways around that as well.

The common story I’ve heard the last couple years is the organization is going to standardize their social offering to employees on Sharepoint. The organization also had 5 to 15% of their people using an unauthorized Yammer instance. Once Sharepoint social components were rolled out they weren’t that usable and employees pointed to the much more usable Yammer and in 2 months the Yammer use doubled. Nearly all the companies know at this point they need to find a better option than Sharepoint. Now we may have Yammer and Sharepoint under one roof, or maybe not (still in talks).